JP Morgan Chase is suing startup founders over fake customers

In December 2022, JP Morgan Chase filed suit against Charlie Javice, the 30-year-old founder of fintech startup Frank, which the bank bought for $175 million. Morgan claims that Javice misled it about Frank’s value by falsifying a massive list of clients to convince Morgan that it was a valuable purchase.

The The Wall Street Journal reports that Morgan filed the lawsuit in Delaware, naming Javice and fellow Frank executive Olivier Amar. Court documents detail an alleged deception that began in 2021 when Javice approached the bank about an acquisition, claiming Frank had 4.25 million users. The company had just under 300,000 users at the time.

Here’s more from the WSJ:

“Instead of revealing the truth, Javice initially pushed back [JPMorgan’s] request, arguing that she could not share her customer list due to privacy concerns,” the bank said in its lawsuit. “After [JPMorgan] insisted that Javice chose to invent several million Frank customer accounts out of whole cloth.”

Javice — whom Morgan fired in November 2022 — launched her own legal claim in Delaware days before Morgan sued her. In her lawsuit, she says Morgan owes her millions to compensate her for money she spent on her defense when Morgan started internal investigations.

According to Javice, Morgan “deliberately fabricated a dismissal for cause in bad faith.” She also says Morgan is avoiding paying her $28 million related to Frank’s original acquisition.

Javice launched Frank in 2016. The company aimed to simplify the student loan application process, and Javice reportedly wanted to make it the “Amazon of higher education.” Her vision was strong enough to garner support from many notable VCs and Frank’s lead investor, billionaire Marc Rowan.

As described in court documents, the alleged deception was anything but random. It was prompted by Morgan’s request that Javice prove that Frank had the number of subscribers he claimed. The suit alleges that Javice initially refused, citing privacy concerns, then not only made up the names of fake customers, but also added “addresses, dates of birth and other personal information for 4.265 million ‘students’ who did not actually exist.”

Javice allegedly drew Amar into the scheme when they paid a computer science professor $18,000 to create the fake list. Finally, if Morgan’s case turns out to be true, the scam may have unraveled because the ruse was also detailed. The “other personal information” mentioned in court papers included email addresses.

The WSJ reports that JP Morgan knew something was wrong when it launched an email campaign with the same addresses and 70% were undeliverable.